UNCTAD's work on international investment agreements

by Carlos Fortin
Deputy Secretary-General of UNCTAD

Geneva, 15 July -- Regardless of the desirability of a multilateral framework on investment, developing countries are today confronted squarely with the issue of international investment agreements. It is UNCTAD's view that these countries must be as well prepared as possible to deal with all aspects of the topic, notably the impact on development and it is UNCTAD's role to assist them in this effort.

The question is unfolding against a background in which governments from both the North and the South have increasingly sought to draw up international agreements on FDI. In 1996, one bilateral investment treaty was signed every second day -- the great majority of them involving developing countries. Many were negotiated between developing countries themselves. Investment negotiations have also been concluded or else are currently under way at the regional level. At the international level, the OECD negotiations on the MAI - now in the midst of a six-month, self-imposed "pause" - have received critical attention from developing countries and other external stakeholders. While many have been positive, many others, notably non-governmental organizations, have expressed strong negative reactions.

Given this recent intensification of international investment discussions and negotiations, UNCTAD has a responsibility to help developing countries participate as effectively as possible in any of the discussions or negotiations in which they decide to participate, and at whatever level - bilateral, plurilateral, sub-regional, regional, inter-regional, or multilateral. This is all the more necessary as, precisely because of the complex MAI negotiations, developed countries are more advanced in understanding the issues involved, and in identifying where their interests may lie.

At UNCTAD-IX, held in Midrand, South Africa in May 1996, our organization was handed a strong mandate, one with a clear starting point and a clear objective.
Member states decided, by consensus, that UNCTAD should provide a forum for an international dialogue on FDI issues. In particular it was asked "to identify and analyze the development implications of issues relevant to a possible multilateral framework on investment, beginning with an examination and review of existing agreements, taking into account the interests of developing countries and bearing in mind the work undertaken by other organizations."

In approving UNCTAD's Mid-Term Review, the Trade and Development Board on 10 July reiterated that UNCTAD should continue its "timely work" in this regard, stating that this work "should be primarily analytical and include consideration of development friendly elements." UNCTAD should also pursue work "to assist developing countries to strengthen their capacity to promote their trade and development through foreign investment," the Board said.

In fulfilment of this mandate, UNCTAD has formulated a broad work programme and begun to put it into effect. Key elements include:

* Ensuring that the development dimension of multilateral investment agreements is understood and adequately addressed - in the objectives they are meant to serve as well as the structure and design of such agreements. Alerting developed countries to the needs and concerns of developing countries is an integral aspect of this large task. But above all, it requires the building of capacity for developing countries to deal with these issues.
* Exploring the issues that need to be considered in the context of international investment agreements. As the World Investment Report discussed in 1996 and 1997, these issues go beyond those being dealt with in bilateral investment treaties of the MAI. They include restrictive business practices, transfer pricing, transfer of technology, employment, environmental issues and illicit payments.
* Deepening understanding of the contents of international agreements, and the processes involved in their preparation. Most of the issues involved in international investment agreements are highly complex, and have a direct effect on national development strategies and policies. Even a seemingly technical issue as the definition of investment ca be fraught with difficulties. To what extent, for instance, should portfolio investment and intellectual property rights be covered in such agreements?
The question is not just of academic interest: the scope of the definition determines the scope of rights and obligations of the parties.
* Consensus-building. UNCTAD-IX called on our organization to provide a forum for intergovernmental discussions on investment and for dialogue among all development actors.

What does UNCTAD not do? First of all, it is not a negotiating forum on international investment issues. Nor does it take a stand on the value per se of international investment negotiations and discussions, wherever they take place. This is consistent with past practice in the field of trade. For e.g., UNCTAD did not take a stand in favour of or against holding the various rounds of multilateral trade negotiations concluded so far.

The thrust of UNCTAD's work in the area of foreign direct investment (FDI) is determined by the position of member Governments. On the basis of experience acquired over the past decade, they have come to the conclusion that there are both positive and negative effects associated with FDI, but that on balance, the positive effects outweigh the negative. In consequence, today all governments, without exception and across the entire political spectrum, seek to attract FDI.

At Midrand, member states asked UNCTAD to help them actively in this respect, through policy-oriented research and technical assistance. The main challenge faced by UNCTAD, therefore, is to assist countries devise policies that help maximise the economic and developmental benefits, and minimize the costs, of FDI. The bulk of our work is in these areas.

Building on 25 years of work in the UN, UNCTAD has undertaken considerable research on the role of FDI in promoting development. Highlights of the most recent annual World Investment Reports were the interrelationship between FDI and trade and issues relating to potential multilateral framework for investment, and FDI and competition. The anti-competitive practices of TNCs was the focus of the latter.

Governments need to decide for themselves whether or not they want to negotiate a multilateral framework for investment. If so, they must decide when and where this will take place. They must also decide on what approach they want to take in the negotiations. In addition to the work described above, the UNCTAD secretariat is exploring the possibilities offered by the "positive list" approach used in the GATS negotiations in the Uruguay Round. But, in this as in all other areas of its work, the UNCTAD secretariat can only facilitate the decision-making process of developing countries. It cannot, and it does not pretend to, substitute for it. (TWN)